Temu, a popular shopping app owned by PDD Holdings Inc., experienced a significant drop in share prices after reporting lower-than-expected sales in the second quarter. On August 26, before the market opened in New York City, share prices fell by 15 percent. Despite an increase in revenue to over $13 billion, the growth rate has stalled, disappointing analysts who had predicted higher sales for the quarter. PDD Holdings attributed its revenue increase to online marketing and transaction services.
In a statement released on August 26, PDD Vice President of Finance Jun Liu acknowledged that the company’s revenue growth rate had slowed and expressed concerns about intensified competition and external challenges impacting future profitability. Lei Chen, chair and co-CEO of PDD, also recognized the “many challenges ahead” during the quarterly announcement.
PDD executives emphasized their commitment to supporting high-quality merchants while addressing low-quality ones. Executive Director and co-CEO Jiazhen Zhao stated that they would vigorously support high-quality merchants while firmly tackling low-quality ones to build a healthy and sustainable ecosystem.
Temu entered the U.S. market in 2022 and quickly became one of the most downloaded shopping apps worldwide in 2023 with over 337 million downloads—almost twice as many as Amazon Shopping app according to analytics website Backlinko.
However, Temu has faced protests from sellers who claim they have been subjected to unsustainable business practices since May. In July, hundreds of merchants stormed into PDD’s Guangzhou office during a large-scale demonstration against these alleged practices.
As part of its efforts to prioritize high-quality merchants while dealing with low-quality ones, Temu imposes fines on vendors based on consumer complaints. Several merchants have expressed concerns about this process; they claim that fines are issued without explanation or an appeals process which leaves them unaware if they suffered losses due to penalties.
Merchants have also criticized Temu for forcing low prices through a “bidding” process that restricts vendors from setting their own prices effectively. Counterfeit products flooding the platform at significantly lower prices than genuine items have further aggravated merchant dissatisfaction with Temu.
The problems faced by Temu extend beyond merchant grievances; it is currently embroiled in legal battles with rival Shein over allegations of counterfeiting and copyright infringement. Both companies have also faced criticism for not taking measures against benefiting from slave labor associated with China’s cotton production involving Uyghur Muslims detained under harsh conditions by Chinese authorities.
Furthermore, Arkansas Attorney General Tim Griffin has filed a lawsuit against Temu alleging data theft through malware and spyware installed on users’ devices without their knowledge or consent—a claim supported by Grizzly Research’s report stating that Temu loses money per order but profits from user data sales.
Temu denies all allegations made against it regarding data theft or any other misconduct mentioned in lawsuits filed against them.
Attorneys general from 21 states are demanding answers from Temu regarding its connections with China’s Communist Party (CCP), expressing concerns about slave labor practices and potential data theft issues.
While some states prohibit user data sales through legislation, China passed its own security law requiring companies operating within its borders to share data upon request—a law conflicting with international regulations.
It remains uncertain how these challenges will impact Temu’s future performance as it navigates legal battles while striving for sustained growth amidst intense competition within the e-commerce industry.